If taxes decrease and government purchases decrease the IS c

If taxes decrease and government purchases decrease, the IS curve:

a. will shift right

b. will not shift

c. will shift left

d. may shift right, left, or not shift at all

Solution

With a decrease in the Autonomous expenditure i.e. the government expenditure will shift the IS curve to the left but a decrease in the Taxes will shift the IS curve to the right. The total process will end up with an ambiguous position of IS curve.

The answer is \"D\", May shift right; left, or not shift at all.